Silicon Valley Is Losing Its Regulatory Favor

Back in July, the FAANG (Facebook, Amazon, Apple, Netflix and Google’s Alphabet) stocks were loved by everyone after doing better about 40%, on average, through the first seven months of the year. These blue chip tech stocks were juicing the performance of the S&P 500 for the year (which was up around 8% year-to-date).

But then Amazon missed on earnings. Remember I said: "I suspect Amazon's earnings miss will be the cue for profit taking, and a rotation will take place from the high flying tech leaders, to the beaten down commodities stocks."

At that time, the central banks were talking "reflation" but commodities prices and commodities stocks were dead. It wasn't adding up.

Since then Amazon has fallen from 14%, from the all-time highs. The FAANG trade is now down 8% on average from the summer highs. And broad commodities ETFs are up in the neighborhood of 4%-5% since.

Amazon topped?Reuters

The question: Has the tech boom run its course?

Remember, we've talked about the favor of the Obama administration toward Silicon Valley through the boom. Here's an excerpt from my June Pro Perspectives piece where on that topic: "Without question, the Obama administration was very friendly to the new emerging technology industry. One of the cofounders of Facebook became the manager of Obama's online campaign in early 2007, before Obama announced his run for president, and just as Facebook was taking off after moving to and raising money in Silicon Valley (with ten million users). Facebook was an app for college students and had just been opened up to high school students in the months prior to Obama's run and the hiring of the former Facebook cofounder. There was already a more successful version of Facebook at the time called MySpace. But clearly the election catapulted Facebook over MySpace with a very influential Facebook insider at work. And Facebook continued to get heavy endorsements throughout the administration's eight years.

In 2008, the DNC convention in Denver gave birth to Airbnb. There was nothing new about advertising rentals online. But four years later, after the 2008 Obama win, Airbnb was a company with a $1 billion private market valuation, through funding from Silicon Valley venture capitalists. CNN called it the billion-dollar startup born out of the DNC.

Where did the money come from that flowed so heavily into Silicon Valley? By 2009, the nearly $800 billion stimulus package included $100 billion worth of funding and grants for the "the discovery, development and implementation of various technologies." In June 2009, the government loaned Tesla $465 million to build the model S.

When institutional investors see that kind of money flowing somewhere, they chase it. And valuations start exploding from there as there becomes insatiable demand for these new 'could be' unicorns (i.e. billion-dollar startups).

Who would throw money at a startup business that was intended to take down the deeply entrenched, highly regulated and defended taxi business? You only invest when you know you have an administration behind it. That's the only way you put cars on the street in NYC to compete with the cab mafia and expect to win when the fight breaks out. And they did. In 2014, Uber hired David Plouffe, a senior advisor to President Obama and his former campaign manager to fight regulation. Uber is valued at $60 billion. That's more than three times the size of Avis, Hertz and Enterprise combined."

So we asked: Will it keep going under Trump? Will the money that chased the subsidies from D.C. to Silicon Valley for eight years (i.e. the trillion-dollar pension funds) stop flowing?

Fast forward a few months, and the air is coming out of the stocks (a bit) and the regulatory environment is becoming less friendly. Uber has been banned from operating in London. And last week, the U.S. Senate advanced legislation to take away the internet industry's legal protection that shields them from being sued from the activities of their users.

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I founded billionairesportfolio.com -- an online investment advisory site that gives the average investor access to sophisticated hedge fund analysis and strategies, all in an easy to understand format. I am also CEO of Logic Fund Management. I started my career with a Lon...